We have previously provided updates to keep you informed of the changing landscape of the treatment of unpaid present entitlements (UPEs). The update we issued on 22 October 2010, Division 7A & UPEs Final Practice Statement – time to review structures, explains the options available for dealing with UPEs and the key dates for 2010 and 2011 UPEs.
As 30 June draws nearer, we wanted to provide you with a reminder of the key issues and critical actions that must be taken by 30 June 2011. The options available and key dates are set out in Practice Statement PSLA 2010/4. The Practice Statement provides guidance on Taxation Ruling TR 2010/3 which sets out the Commissioner's views as to when a private company with a UPE from an associated trust is considered to have made a loan for Division 7A purposes.
Key issues and critical actions
- For UPEs arising between 16 December 2009 and 30 June 2010 the trustee has until 30 June 2011 to decide whether to convert the UPE into a complying Division 7A loan or to hold the funds representing the UPE on sub-trust for the sole benefit of the private company beneficiary and take one of the options under the Practice Statement.
- If the trustee chooses to take a sub-trust option this must be documented by 30 June 2011.
- If the trustee chooses not to take a sub-trust option, the UPE must be paid in full or made into a complying Division 7A loan by the earlier of the due date and actual date of lodgement of the company's 2011 tax return. Failure to comply will result in a deemed dividend.
- Pre-16 December 2009 UPEs are quarantined from the new rules and should be recorded in a trust's accounts separately if this has not been done already.